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Powell In The Spotlight – Reinforcing Patience, Watching Potential QT Clues

FED
  • The text for Chair Powell’s testimony is to be released at an unknown time ahead of his 1000ET appearance in front of the House, although as we noted yesterday, prior House appearances have recently seen a 0830ET text publication.
  • Powell used the Jan 31 FOMC press conference to set a high bar for a March cut. See a recap here: https://roar-assets-auto.rbl.ms/files/59780/FedReviewJan2024.pdf
  • Payrolls and CPI have since come in notably stronger than expected, albeit for January with seasonality likely at least partly distorting the underlying trend.
  • Subsequent Fedspeak has for the most part called for patience before starting rate cuts in a careful manner, whilst some including NY Fed’s Williams have looked to maintain flexibility by rejecting the need to move at end-quarter meetings with the SEP.
  • This patience was emphasized in last week’s Monetary Policy Report “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
  • With Powell expected to echo this sentiment, greater attention could be on any insights ahead of the upcoming QT discussion. Powell at the Jan presser on QT tapering: "we had some discussion of the balance sheet" at this meeting - as expected - though Powell cast doubt on a QT taper announcement as soon as March and/or initiation soon thereafter ("We are planning to begin in-depth discussions of balance sheet issues at our next meeting in March.")
  • Dallas Fed’s Logan, viewed in high regard on QT discussions, last week reiterated her desire for slowing the pace of QT as ON RRP balances declined near zero in order to ensure that ample reserves remained in the system to effectively and efficiently manage the policy rate under the floor system. As Deutsche Bank write, this is “an operating regime that some in Congress routinely voice their criticisms at the semi-annual monetary policy testimonies.”
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